Authored by: Jennifer McIntosh, Associate Director, Quantum Jennifer McIntosh, BA(Hons), LLB(Hons), MScQS, AMAE | Rimkus
Construction loss and expense claims turn on two questions: whether the construction contract entitles the contractor to additional costs incurred due to delays, disruption, or other unforeseen events, and what direct financial losses have been incurred as a result.
Typically, claims for loss and expense are made under standard forms of contract such as Joint Contracts Tribunal (JCT) Contracts, which outline the process for submitting a claim.
In addition to the claim being made in accordance with the contract, the direct additional costs or losses must be calculated as accurately as possible. It is usual for a quantity surveyor to compile a claim for loss and expense. It is therefore important that relevant documentation is available to ascertain the actual losses incurred and the party to whom they are due.
This article defines loss and expense, and outlines the key elements of a loss and expense claim. It sets out the contractual basis for entitlement, the types of events that may give rise to a claim, and the evidence required to assess quantum. It also explains how standard forms of contract approach loss and expense, why contemporaneous records are critical, and how contractors and assessors can distinguish between entitlement to time and entitlement to money.
What is a loss and expense claim?
A construction loss and expense claim is a contractual right of the contractor (or subcontractor) to recover additional costs incurred due to delays, disruptions, or other employer-risk events that have had a material effect on the progress of the works.
The Royal Institution of Chartered Surveyors (RICS) defines the term more precisely in Ascertaining Loss and Expense (2nd edition, July 2024) as ‘the direct loss and expense that would not be reimbursed by a payment under other contract provisions‘[1].
A loss and expense claim aims to provide a remedy that restores the contractor to the financial position it would otherwise have been in.
What events entitle a contractor to loss and expense?
Depending on the construction contract, a contractor can claim direct loss and expense as a result of the progress of the work being materially affected for which the employer is responsible, which may include the following:
- Multiple failures by the employer to:
- Give the contractor possession of the site
- Give the contractor access to and from the site
- Instructions:
- Delays in receiving instructions
- Relating to variations
- Relating to expenditure of provisional sums
- Necessary and relevant opening-up works/testing works required and carried out in accordance with the contract
- Discrepancies in the contract documents
- Disruption caused by works by the employer
- Failures by the client or employer with the supply of goods or materials
- Inaccurate forecasting of the works
- Issues relating to The Construction (Design and Management) Regulations 2015 (CDM).
Loss and expense claims may arise from disruption to the work or from programme delays (prolongation). It is worth noting that not all claims for extensions of time result in a successful claim for loss and expense, and that loss and expense claims do not always result in a delay to the completion of the works.
The JCT Design and Build Contract deals with events relevant to the adjustment of the completion date, rather than cost. It also addresses breaches of contract or subcontract that result in damages and are therefore relevant to a loss and expense claim. To bring a claim for loss and expense, the delay must be attributable to a relevant matter, enabling the contractor to claim any monetary loss and expense incurred as a result of the event that caused the delay to the progress of the works.
Under NEC, loss and expense is dealt with through compensation events, which allocate both time and money, rather than through the two separate mechanisms set out in JCT (relevant events and relevant matters). The NEC aims to deal with time and money in real time, driven by process. There is also a requirement that compensation events should be notified in a prescribed timescale.
How does a loss and expense claim differ from an extension of time claim?
An extension of time (EOT) is a time remedy. It is a contractual adjustment to the project’s completion date. This adjustment is required when a contractor experiences delays beyond their control. These delays are referred to as “relevant events” under standard forms of contract such as JCT. An extension of time relieves the contractor from liquidated and ascertained damages (LADs), which would apply and be payable by the contractor for late completion of the project.
Loss and expense is a claim for financial remedy. The contractor makes the claim to compensate for additional costs incurred due to delays or disruptions caused by the employer or other events. A loss and expense claim generally requires independent proof of costs, separate from any EOT entitlement. The costs incurred may include time-related resource costs for prolongation, disruption costs arising from inefficiencies / change in work sequencing, overheads, profit on indirect costs associated with the extended period, and interest.
The Society of Construction Law (SCL) Delay and Disruption Protocol (2nd edition, February 2017) confirms that an extension of time and a loss and expense claim are independent: ‘entitlement to an EOT does not automatically lead to entitlement to compensation (and vice versa)‘.
How do loss and expense provisions differ across standard forms of contract?
Loss and expense provisions vary across standard forms of contract. The contract provisions determine when, how, and under what conditions a party can claim additional costs or losses.
JCT standard form contracts allow for the recovery of direct financial losses incurred as a result of relevant matters that have materially affected the progress of the works. Contemporaneous records must evidence the actual costs directly caused by the relevant matter.
Unlike the JCT standard building contract, the NEC4 standard form does not set out a separate loss and expense clause. Loss and expense under NEC4 is dealt with under Clause 60.1 in the form of compensation events. A compensation event is an event that affects the contract price, completion date, or key dates, through no fault of the contractor. Each event is assessed for cost and time impact simultaneously.
FIDIC standard forms define loss and expense as additional costs incurred by a party as a direct result of the other party’s default or breach of contract. The FIDIC suite of contracts defines loss and expense claims by providing clauses for ascertaining, quantifying, and compensating for losses, and addresses risk allocation principles. The losses include the financial impact, including direct, indirect, and prevention costs.
What preserves a contractor’s entitlement to loss and expense?
There is no automatic entitlement to loss and expense. It is a contractual right that can be utilised upon strict compliance with the contract and subject to the procedural requirements being met. Depending on the contract, there are often some main criteria that must be met for a loss and expense claim to be successful, as follows:
- Identify the contract provisions
- Provide timely and valid notices as set out in the contract.
- Follow the contract’s procedural steps accurately.
- Prove the costs are a direct cause of the specified event.
- Provide sufficient and relevant substantiation to support the claim.
The procedural steps vary depending on the contract. Some examples are provided below.
Under JCT, the contractor gives notice as soon as the likely effect of a Relevant Matter on regular progress becomes or should have become reasonably apparent.
Under clause 61.3 of the NEC4 Engineering and Construction Contract (ECC), unless a contractor gives notice of a compensation event within eight weeks of becoming aware that the event has occurred, the costs, the completion date, and the key dates remain unchanged.
FIDIC 2017, sub-clause 20.2.1 is expressly a condition precedent. The contractor must send the Notice of Claim to the other party within 28 days of actual or constructive awareness and submit a fully detailed claim within 84 days.
How is loss and expense evaluated?
To assess the loss and expense incurred, the additional costs must be actual and substantiated, rather than estimates. The process is therefore contractual and analytical, required in accordance with the contract. Relevant and robust documentation is key in providing an accurate assessment of the loss and expense actually incurred.
The “loss” element reflects the financial consequences from delays, unforeseen events or breaches. The “expense” element reflects costs incurred during contract execution, including direct and indirect costs. Both elements must be evidenced through contemporaneous documentation.
The SCL Delay and Disruption Protocol states, “the preference remains for a measured mile analysis, where the requisite records are available, and it is properly carried out.”
The RICS “Ascertaining Loss and Expense” practice information (2nd edition, July 2024) provides guidance on the methodology of assessing loss and expense claims. It defines contemporary records as “those that are original or ‘primary documents’, or (good) copies thereof; these documents should ideally be produced at the time of the claim in question occurring“.
What are the main heads of claim?
Prolongation covers time-related site and off-site overheads associated with compensable critical delay. Under the SCL Protocol, assessment runs from the period when the effect of the employer-risk event was felt, not the extended period at the end of the contract. Compensation rests on actual additional cost.
Disruption is defined by the SCL Delay and Disruption Protocol as ‘a disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower efficiency’. The preferred method is the measured mile, where the requisite records are available, and the analysis is properly carried out, a method further broken down in Rimkus’s article on loss-of-productivity claims.
Acceleration claims may compensate for the cost of increasing the rate of progress. English law generally does not impose a duty to accelerate to recover employer delay.
Loss of profit typically requires proof, on the balance of probabilities, that the contractor would have won profitable work elsewhere but for the delay.
Financing charges may be recoverable as direct loss and expense following F. G. Minter v Welsh Health Technical Services Origination [1980] CA 13 BLR 1. In Rees & Kirby Ltd v Swansea City Council (1985) 30 B.L.R. 1, the court accepted that such charges may be compounded. Assessors exclude periods attributable to non-employer causes.
How are head office overheads calculated when direct evidence is unavailable?
Walter Lilly & Company Ltd v Mackay [2012] EWHC 1773 (TCC), as restated in Fluor Ltd v Shanghai Zhenhua Heavy Industry Co Ltd [2018] EWHC 490 (TCC), sets the sequence. The contractor proves it has lost the chance to earn contribution from other work; a formula then ‘is a legitimate and helpful way’ of quantifying that return.
In RICS Practice Information: Ascertaining loss and expense (UK, 2nd edition, July 2024), the RICS names the Hudson formula and the Emden formula as the two main methods of calculating head office overheads in the UK when direct evidence is unavailable.
The Hudson formula can be used to assess the tender-derived overhead and profit percentage applied to the contract sum over the delay period. However, the SCL Delay and Disruption Protocol does not support it: the tender percentage may be inadequate, and the calculation double counts.
The Emden formula can also be used, which substitutes a percentage from the contractor’s audited accounts: overheads and profit divided by turnover.
What is a global claim, and why does it carry greater risk?
A global claim identifies a total sum made up of multiple quantum elements. Rather than attributing each cost to its specific cause and providing a detailed, particularised assessment, a global claim is often an estimate that comprises several elements.
A global claim is still possible and is often the only option where a more detailed and particularised assessment is not possible. This may arise where there is no possibility of a further breakdown of the total sum. It remains a requirement with a global claim that contemporaneous evidence is provided to ascertain the loss incurred. A global claim should be avoided if better contemporaneous evidence and substantiation to the claim is available, in which case the assessment should be based on the evidence available.
Walter Lilly confirmed such submissions are permissible in principle: the balance is attributed ‘without more and by inference’ to the causes relied upon, and the contractor need not show that conventional pleading of cause and effect was impossible.
The SCL Delay and Disruption Protocol states, “The not uncommon practice of contractors making composite or global claims without attempting to substantiate cause and effect is discouraged by the Protocol, despite an apparent trend for the courts to take a more lenient approach when considering global claims.“
It carries greater risk because the contractor still bears the burden of proving that the loss was incurred. The contractor therefore must apply the civil standard of proof: “on the balance of probabilities“. It generally needs to show the loss would not have been incurred anyway.
What role do contemporaneous records play in a loss and expense claim?
The SCL Delay and Disruption Protocol states that records must be generated contemporaneously as the works progress, and not afterwards. The Protocol establishes six categories of records that should be addressed; programme, progress, resource, cost, correspondence, and contract documents.
The RICS Practice Information: Ascertaining loss and expense states, “The contractor must keep factual and contemporary records to substantiate its claim.” It lists the records that can be used to substantiate loss and expense claims, in addition to the drawings issued by the employer, written instructions, and correspondence, as follows:
- Contractor’s programme and amendments
- Relevant invoices and proofs of payment
- Site diaries
- Site reports
- Site measures
- Clerk of works reports
- Day work records
- Photographs with location, date and time
- Minutes of meetings
- Labour allocation sheets.
The records enable those assessing the loss and expense claim to be “reasonably satisfied that all the loss and expense claimed is likely to be or has been incurred“, enabling an assessment on a reasonable satisfaction standard rather than certainty.
In Van Oord UK Ltd and SICIM Roadbridge Ltd v Allseas UK Ltd [2015] EWHC 3074 (TCC), the court criticised the quantum expert’s testimony and stated that the expert took the pleading at face value without checking the underlying documents, and that actual costs incurred were disregarded in favour of made-up or calculated rates. The expert was criticised for not critically analysing the claim, taking it at face value without reviewing underlying documents, and not considering actual costs incurred.
In Amey LG Ltd v Cumbria County Council [2016] EWHC 2946 (TCC), a productivity claim failed because the court was not satisfied a sample could be extrapolated across the works.
Key takeaways on loss and expense claims
Construction loss and expense claims protect contractors from liability for costs incurred due to employer-driven disruptions.
Quantity surveyors, contract administrators, and claims teams typically test entitlement first, then quantum, evaluating each against the contract wording and the contemporaneous records.
Entitlement
- Under JCT, time and money are separate: Relevant Events govern extension of time, Relevant Matters govern loss and expense.
- Notice provisions may operate as conditions precedent; NEC4 imposes a hard eight-week time bar, and FIDIC imposes a 28-day bar.
Quantum
- Assessors usually evaluate each claimed head separately, including prolongation, disruption, acceleration, head office overheads, loss of profit, and financing charges.
- Global claims are permissible in principle but carry added evidential difficulties and closer scrutiny.
These distinctions drive both notice strategy and the evidence needed to prove quantum.https://rimkus.com/region/emea/
How Rimkus supports loss and expense claims
Construction loss and expense claims depend first on contractual entitlement and then on proof that the claimed cost is properly attributable to the relevant event. The contract wording identifies the route to recovery, while contemporaneous records may substantiate what additional cost was actually incurred.
Rimkus provides contractual claims support, delay analysis, quantum assessment, and commercial and quantity surveying services across Europe, the Middle East, and Africa for law firms, insurance teams, corporations, and government bodies. Its delay, quantum, and technical specialists review contract provisions, notices, programmes, cost records, and supporting documents for construction claims and disputes. Rimkus has 40+ years of experience. To discuss a construction loss and expense claim, contact the EMEA team.
Frequently asked questions about construction loss and expense claims
How does the duty to mitigate loss affect the value of a loss and expense claim?
The duty to mitigate limits recovery to loss that was reasonably unavoidable, though reasonable mitigation costs remain recoverable. The burden typically rests with the defendant to prove that reasonable steps were available and would have reduced the loss.
Can subcontractors bring their own loss-and-expense claims, and how do these relate to the main contract?
Subcontractors typically claim under the subcontract against the main contractor rather than directly against the employer, given the lack of privity with the owner. The contractor may then present a pass-through claim under the main contract for that portion of the loss.
How can contracts reduce future loss and expense claims?
Clear risk allocation, detailed scope definition, and differing site conditions clauses can help pre-empt disputes over entitlement. Contemporaneous documentation requirements and tiered dispute resolution provisions can further limit the scale of claims that arise.
This article is intended to provide general information and insights into prevailing industry practices. It is not intended to constitute, and should not be relied upon as legal, technical, or professional advice. The content does not replace consultation with a qualified expert or professional regarding the specific facts and circumstances of any particular matter.
[1] RICS Practice Information: Ascertaining loss and expense, UK, 2nd edition, July 2024, page 3.